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Q & A

JLA: What has this recession taught us about globalisation?
MZ: Because global trade is such an important part of all manufacturing, for example, the recession has led to a collapse far greater than was the case in the Great Depression. It globalises the effects of a major downturn.

JLA: Will capitalism itself look different when we emerge?
MZ: Capitalism only looked like 'capitalism' when compared with the so-called 'communism' of the USSR. In fact it was always a very diverse phenomenon. While the economies of Japan, France, and the USA can all be described as capitalist, they are very different animals. While in general there will be more state control of economies (the Anglo-American model is on life support even in those two countries), the forms of state control will vary from country to country. In the end, what Greenspan did was to make the Chinese model a more dominant paradigm than the US model. Thanks, Alan.

JLA: Is the G20 capable of agreeing and imposing smarter regulation?
MZ: No way. As the number of countries involved in global deliberations has increased, the chances for coordinated responses has diminished.

JLA: How do you regain trust, re-build confidence and re-kindle ambition?
MZ: Ambition remains aplenty. The good news from this debacle is that work and value will return to the fore. People will return to making money the old fashioned way - through entrepreneurial activities, investments in legitimate businesses etc. The fast buck is over. The scams are largely over. Work is back. Long term this is a good thing.

Can public sector leaders learn from the private sector, and vice versa?
MZ: They can, but probably won't. In Europe the public sector will continue to impose itself on the private in ways inimical to faster economic growth. There's nothing wrong with that because the population accepts the trade off, it seems. In the US the public is about as angry as the people of Tehran following the death of the Grand Ayatollah Montazeri. November 2010 will see a crucial election for the Senate and the Congress - and it doesn't look good for Obama.

Which sectors/business models are most likely to thrive in the next year?
MZ: In the US the clear winner will be healthcare. It's already up 17%, and it will go higher. Defence is another, teamed with electronics. Otherwise education will benefit from new expenditure as Americans see it as their way out of the trap of low paying jobs. In Europe, I would bet on Brussels!

PANIC OVER PAKISTAN
by Marvin Zonis

The U.S. recently hit the reset button with Russia. Now it is hitting the panic button over Pakistan. In recent Congressional testimony, Secretary of State Clinton said that Pakistan faces an "existential threat" from Islamic jihadists and that the Government of Pakistan has "basically abdicated to the Taliban extremists." The level of anxiety in Washington is so high that Chairman of the Joint Chiefs of Staff, Admiral Mike Mullen has been spending some two days per week huddling with the Pakistan military chief General Ashfaq Kayani.

The news from Pakistan is bad, very bad. Despite a deal for the militants' withdrawal from the district of Buner - only 60 miles from Islamabad - groups of militants remain and still patrol Buner's streets. They have banned shaving for men and mandated burkas for women. President Zardari continues his policy of appeasement apparently hoping that the militants can be bought off with concessions. But Pakistani militant groups -- al Qaeda, the Taliban, Lashkar-e-Taiba, Harkat-ul-Mujahideen - increasingly see the takeover of the state as their goal and no amount of appeasement will dissuade them from that goal.

The military remains the most important and powerful state institution in Pakistan. But its main concern is not the militants. The military's deepest fear is an Indian dominated Afghanistan, threatening Pakistan from the north and west as well as from the east. As a result, the Pakistanis continue to provide shelter inside Pakistan to Mullah Omar and his Afghan Taliban as well as to the principal anti-American Afghan militia leaders and their loyal troops (not to mention Osama Bin Laden and Ayman al Zawahiri). And, despite Admiral Mike Mullen's best efforts, the Pakistan military continues to train to fight a conventional war against India and maintains the bulk of its forces on its border with India.

But above all, the military prizes its nuclear capability as the guarantee against what it sees as the existential threat from India. The military will protect and secure that capability and will remain the institutional backbone of the Pakistani state.

The question is whether it will act to prevent a takeover of the state by the jihadists or succumb to them. While substantial sectors of the military sympathize with the jihadists, they do so not so much out of a commitment to Islamic rule as much as to the jihadists' capabilities against India and against a pro-Indian Afghanistan. Even those in the military sympathetic to the jihadists' cause, in other words, are likely to resist their taking over the Pakistani state. I assign a probability of 65% to the "muddling through" scenario with a secular Pakistani state surviving. I assign a probability of 35% to a jihadist takeover.

These probabilities will change in the jihadists' favor if Pakistan's economy fails to revive with the end of the global recession.